BSP flags inflation risk from El Niño, rising oil prices
MANILA, Philippines — The Bangko Sentral ng Pilipinas on Friday said it remains on guard against risks to its inflation outlook amid threats posed by El Niño and rising oil prices in the world market.
Data from the Philippine Statistics Authority showed inflation decelerated to 3.3% in March, slower than 3.8% chalked up in February and 4.3% posted a year ago. The latest reading — which marked the fifth straight month that soaring prices cooled down — was the lowest inflation rate since January 2018, the PSA said.
Year-to-date, inflation averaged 3.8% — settling within the state’s 2%-4% annual target.
“However, the possibility of a stronger and prolonged El Niño episode together with the continued rise in global crude prices provide upside price pressures over the near term,” the BSP said in a statement after the release of March inflation figures.
Latest estimates from the Department of Agriculture showed damage inflicted by the El Niño dry spell to the farm sector stood at P5.05 billion as of April 2. The drought has so far hit 164,672 farmers.
Meanwhile, local pump prices have motored this year amid expectations of tight global supply.
In the same statement, the central bank said potential slowdown in domestic economic activity due to the budget standoff in Congress and dimmer global economic prospects could present “downside risks to inflation.”
“Against this backdrop, the BSP continues to keep a close watch over price developments in the country and shall consider all relevant information at its next monetary policy meeting on May 9,” monetary authorities said.
‘Cements the case for a cut’
The BSP tightened monetary policy by a cumulative 175 basis points to 4.75% last year after inflation hit a near-decade high in September and October. Surging prices have eased since then.
New BSP Governor Benjamin Diokno — who is widely seen by the market as a pro-growth central bank chief — recently said there is room to loosen monetary policy, but stressed that the timing and magnitude of any actions would be “data dependent.”
Diokno also said possible cuts in required reserves imposed on banks may happen “in the next four quarters,” pointing out that the Philippines’ reserve requirement ratio “is very high.”
In a commentary sent to reporters on Friday, analysts at ANZ Research said another benign inflation print in April should allow the BSP to cut its key rate by 25 basis points at its May meeting.
“Moreover, the central bank’s repeated lowering of its 2019 inflation forecast (three revisions since November 2018), suggests to us that monetary policy is likely to make a U-turn this year,” ANZ said.
Separately, ING Bank said it continues to believe that the door to ease monetary policy remains wide open.
“Although there are risks to the inflation outlook, the threat of oil price spikes and El Niño crop damage all emanate from the supply side of the equation and would be best addressed by measures on the supply side,” said Nicholas Mapa, senior economist at ING Bank in Manila.
“With low inflation now more firmly entrenched, inflation expectations anchored and demand-side pressures to inflation limited, we expect BSP to finally consider reducing reserves in the near term and slash its policy rate at the 9 May meeting given signs of growth slowing,” Mapa added.
- Latest
- Trending
